Abstract
The behavioral theory of the firm has been tested across various organizational change settings. This literature shows that firms pursue change when performance drops below aspirations, but relatively scarce research examines how pay dispersions of the dominant coalition influence this process. Integrating insights from behavioral theory and pay dispersion research and applying them to the business divestiture context, we propose that top executives facing total pay dispersions likely experience team conflicts and dissatisfaction, attenuating divestiture rate in response to performance shortfalls. Managers with distinct time horizons, however, exhibit varying behaviors whereby unexercisable option pay dispersion weakens divestiture rate due to widening pay gap over the long-term whereas exercisable options and stock pay dispersions foster divestiture tendencies to improve short-term performance and close the pay gap.
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